As the government and Seoul City speed up the supply of housing, incentives for small-scale maintenance projects, which were seen as 'blind spots for development', are also being strengthened. Small-scale maintenance projects that build 1 to 2 apartment buildings have the limitation of being completely exposed to rising construction costs, and it is worth noting whether they will gain momentum with various support measures.
According to the maintenance industry on the 1st, Seoul plans to apply a “business performance correction factor” to Moa Town from January next year. Moa Town is a policy to create an apartment complex with a site area of less than 100,000 square meters by gathering “Moa Houses,” which are small-scale maintenance sites, in blocks. Earlier, the city introduced a business performance correction factor for reconstruction and redevelopment projects in the city in September of last year, and it plans to expand the target starting next year.
A business performance correction factor is a system that increases the allowable volume ratio from 20% to a maximum of 40% by applying a correction factor (maximum 2) to a maintenance site with a low disclosure price. In maintenance projects, the volume ratio consists of four levels: standard → permit → upper limit → legal upper limit (210% → 230% → 250% → 300% in the case of the three types of general residential areas in Seoul), and various burdens must be borne each time it is raised one level at a time. In particular, in order to meet the upper legal limit of the volume ratio, part of the increase in the volume ratio must be built as rental housing. Because of this, when the allowable volume ratio increases, the volume ratio to meet the legal upper limit is reduced, which has the effect of increasing the number of condominiums. In other words, the business performance of maintenance projects is improved.
Seoul believes that most Moatown business sites can benefit from the business performance correction factor system. This is because out of a total of 116 Moatown business sites, the public price of 108 sites is lower than the Seoul average. The business performance correction coefficient follows the formula where the lower the published price of the business site, the higher the coefficient. An official from Seoul City explained, “Since the implementation of the system, most reconstruction and redevelopment sites with a public site price lower than the Seoul average have applied a business performance correction factor,” and “we are introducing this system to Moa Town because we have determined that it is effective in revitalizing maintenance.” In fact, the redevelopment of Sangdo District 14 and Sangdo District 15 in Dongjak-gu, Seoul increased the number of sales households by 53 and 74 units, respectively, from the previous plan by applying a business performance correction factor.
Apart from the business performance correction factor, Seoul revised the May ordinance to significantly increase the volume ratio of small-scale maintenance projects. Specifically, the ordinance volume ratio increased from 200% to 250% for Class 2 general residential areas, and from 250% to 300% for Class 3 general residential areas. The application targets include small-scale reconstruction of a site of less than 10,000 square meters, small-scale redevelopment of a site of less than 5000 square meters, and autonomous housing repair projects with less than 36 households.
What is noteworthy is that the volume ratio of the revised ordinance is at the same level as the legal upper limit (250% for 2 types, 300% for 3 types). In maintenance projects, considering that the ordinance volume ratio means the upper floor area ratio, this measure will have the effect of completely eliminating the burden of rental housing construction in small-scale maintenance projects. This is because previously, part of the increase between the upper limit and the legal upper volume ratio was collected as a donation for rental housing, and there is no need to go through this procedure. However, Seoul will only apply this measure for a limited time until May 2028.
Typical beneficiaries of this volume reduction policy include redevelopment sites that build 2 to 3 apartments of the same size and reconstruction sites with relatively low volume ratios. An official in the maintenance industry said, “Small-scale apartments that have been assessed as difficult to rebuild are welcome by this measure,” but advised that “small-scale maintenance projects have many restrictions due to project costs and restrictions on surrounding sunshine rights, so when investing, it is necessary to carefully consider whether the project is actually a place where the project can be carried out.”
